The Effect of Price Changes of Some Major Construction Materials On The Economic Input of Sri Lankan Construction Industry

Table of Content
Table of Contents
1. Chapter One .......................................................................................................... 1

1.1 Background ................................................................................................... 1
1.2 Research problem .......................................................................................... 3
1.3 Aim ................................................................................................................ 3
1.4 Objectives ...................................................................................................... 3
1.0 Methodology ................................................................................................. 4
1.0.1 Literature Survey and Review................................................................ 4
1.0.1 Secondary Survey................................................................................... 4
1.0.2 Data Analysis ......................................................................................... 4
1.1 Scope and limitations .................................................................................... 4
1.2 Chapter breakdown........................................................................................ 5
2. Chapter two .......................................................................................................... 6
2.1 Gross domestic product ................................................................................. 6
2.2 Construction industry .................................................................................... 8
2.3 Construction projects ................................................................................... 10
2.4 Project cost .................................................................................................. 11
2.5 Construction material .................................................................................. 13
2.5.1 Cement ................................................................................................. 13
2.5.2 Sand ...................................................................................................... 15
2.5.3 Aggregate ............................................................................................. 16
2.5.4 Reinforcement ...................................................................................... 17
2.5.5 Formwork ............................................................................................. 17
2.6 Material management .................................................................................. 19
2.6.1 Material Procurement ........................................................................... 19
3. Chapter Three ......................................................................................................... 21
3.1 Introduction ................................................................................................. 21
2.7 Research design ........................................................................................... 21
2.7.1 Study population .................................................................................. 22
2.7.2 Sampling techniques ............................................................................ 22
2.7.3 Research instrument and data collection .............................................. 22
2.8 Instrument for data analysis......................................................................... 23
2.8.1 Coefficient of determination (r2): ........................................................ 23
2.8.2 F test ..................................................................................................... 23
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Table of Content
2.8.3 Decision Rule ....................................................................................... 24

2.8.4 P value .................................................................................................. 24
2.9 Research hypothesis .................................................................................... 25
2.9.1 Null hypothesis (H0); ........................................................................... 25
The following null hypothesis were made: ........................................................ 25
2.1.1 Alternative hypothesis (Hi); ................................................................. 25
References .................................................................................................................. 26
Table of Figures
Figure 1.1: Chapter Break Down ................................................................................. 5

Figure 2.1: Contribution of Major Sectors of the Economy to Total GDP .................. 7
List of Tables
Table 1: Percentage Change of Major Sectors of the Economy to Total GDP ............ 8
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Chapter I Introduction
1. Chapter One
Introduction
1.1 Background
Gross Domestic Product (GDP) is the market value of all final goods and
services produced within a country in a given period of time (Mankiw, 2011 ).
Which is a common measure of well-being of a society in economical view (Chan
and Lam, 2000). The GDP considers the market value of goods and services to arrive
at a number which is used to judge the growth rate of the economy and the overall
economic health of the nation concerned.
When considering on Sri Lankan context, the construction has become one of
the major contribution to the nation’s economy in terms of GDP in recent years,
where other sectors include; services, agriculture, industrial and etc. According to
Nam and Tatum (1989), the construction input to the national economy can be
identified as the net value of all types of activities associated with the erection and
repair of immobile structures and facilities. Today the tasks of predicting and
monitoring of all costs related to the construction process is obligated to the Quantity
Surveying profession. The Royal Institute of Charted Surveyors (1971 cited
Ashworth and Hogg 2007 p.1) define the task of Quantity Surveyor as “ensuring that
the resources of the construction industry are utilized to the best advantage of society
by providing the financial management for project and a cost consultancy service to
the client and designer during the whole construction process.” Purpose of this cost
management by the quantity surveyor is to minimize the amount of money a client
needs to spend on a project, thus enhancing the overall value of the investment while
still maintaining required levels of safety and other mandates.
The cost of construction at the completion is directly or indirectly affected by
various factors such as type of contract entered into, inflation, foreign exchange,
various risk associated with construction works etc. Rosenthal (1999) highlighted
some factors which affect cost of construction as Design of the construction, Site
Condition, Type of construction material, Location of the project, Timing of the
project, Speed of the project, Quality of finishes, Inflation and security. These factors
must be considered by quantity surveyors in building up rates to be inserted in the
Department of Building Economics Page 1
bill. The breakdown of the rates inserted in the bill includes material cost, labour cost
and a percentage of their summation for profit, overhead and risk. Because the
consideration of risks related to a construction project can affect to it’s cost very
significantly. According to the Hayes et al. (1986 cited Mills 2001 p.246) risk and
uncertainty can be identified as a part of all construction work regardless of the size
of the project. The amount of risk related to the construction is depending on the
complexity, speed of construction, location of project and familiarity with the project
(Mills, 2001). Therefore it is important to consider the construction risk when
estimation is undertaking.
Construction materials play an important role in construction industry. In
most projects, the cost of material holding the largest portion of the construction cost.
When estimate construction unit rates, the estimator consider the cost of material at
site which includes the associated cost incurred on purchase, transportation, storage
and management and maintenance related to the materials (Brook, 2004). Besides,
Brook explains factors such as size of project, site condition, complexity of project
amongst others will affect the estimating of construction material cost.
The materials under study in this research are commonly used in construction
activities. Therefore the changes of prices of those materials have a considerable
effect on the construction industry. Duggal (2009) state that the building material
industry can affect to the cost and quality of the construction works. The construction
materials which are to be studied are mostly related to concrete. According to Beall
(2004) concrete can be identified as a fluid mixer of cement, aggregate and water
which can be formed in to different shapes and later on becomes a hard and durable
material. Also steel reinforcement helps to control the natural shrinkage which
occurs as hardening process of concrete and it make concrete stronger and less likely
to crack. The purpose of using formwork is to shape the fluid concrete mixer and
hold it until it gets cured.
1.2 Research problem

Construction industry is one of the important sectors of any country because its
contribution to the national economy is one of the indicators to measure the quality
of living of the community. Therefore it is important to have a sustainable growth of
the construction sector. Pathirage (2008) states that the construction productivity of
Sri Lanka in recent times is affected by the escalation of price of construction inputs.
Also further he state that the percentage growth of construction sector to the nation’s
economy is higher than compared to other sectors and the employment related to the
construction is growing rapidly during the past decade.
Therefore it is most appropriate time to identify the relationship between price
fluctuation of construction materials and output of construction sector to the GDP in
Sri Lanka as determination of that relationship would assist the government to take
necessary actions to control of construction industry in a sustainable manner
1.3 Aim
The aim of this study is to investigate the relationship that exists between
price changes of selected building materials and change in construction input to gross
domestic product (GDP).
1.4 Objectives
The following are the objectives of the study
• Determine the relationship between change in cost of selected construction
materials and change in construction input to gross domestic product.
• Develop equations for relationships of considered building materials
(construction input) to the gross domestic product.
• Identify the factors affecting to the change of the prices of selected
construction materials.
• Recognize the possible mitigation procedures to avoid the impacts of price
fluctuation of selected construction materials to the construction industry.
1.0 Methodology
1.0.1 Literature Survey and Review
A comprehensive literature survey will be carried out to identify the real evidence for
the relationship between construction raw material market behaviours and
construction industry input to the GDP in Sri Lanka and direct and indirect impacts
of construction raw material market behaviours on Sri Lankan construction industry.
Books, journals, dissertations, web sites, articles will be referred to cover the
objective.
1.0.1 Secondary Survey
Data will be collected through the ICTAD bulletin for construction statistics. Price
difference indices for the selected inputs will be used to collect data. The Central
Bank report will be used to collect data related to annual construction input to the
national economy. Data will be collected within the year 2001 and the year 2011.
1.0.2 Data Analysis
The statistical evaluation of data is performed using basic statistical concepts.

Correlation and regression analysis are the principle statistical methodologies
followed in analysis of relationships. The statistical software will be used, is the
Minitab 15.
1.1 Scope and limitations

The scope of the research is to study of the effect of price changes of construction
materials over the Sri Lankan construction industry from 2001 to 2011. Also only
selected list of materials inputs which are specific for the construction will be
covered trough the research.
1.2 Chapter breakdown
CHAPTER ONE • Background for the research

• Structure of the report
Introduction
• Aim, objectives & the methodology of the study
CHAPTER TWO • Theoretical framework for the study.

• Through literature a clear image the research problem
Literature
Synthesis will be provided.
CHAPTER THREE • Review the significance of the study

• Research setting, research design and the process of
Research
Methodology data analysis.
CHAPTER FOUR • Presentation of data findings

• Analyze the collected data using Minitab statistical
Data Analysis &
Discussion software
• Presentation of results of the analysis
CHAPTER FIVE • Conclude the study with findings and

recommendations
Conclusions
• State the further research approaches.
Figure 1.1: Chapter Break Down
Chapter II Literature Synthesis
2. Chapter two
Literature Synthesis
2.1 Gross domestic product
According to the World Bank (2004), the gross domestic product (GDP) is
defined as value of final goods and services produced in country in one year. GDP
can be measured by adding up all of an economy's incomes- wages, interest, profits,
and rents or expenditures- consumption, investment, government purchases, and net
exports (exports minus imports). Both results should be the same because one
person's expenditure is always another person's income, so the sum of all incomes
must equal the sum of all expenditures. The difference of GDP and GNP (Gross
National Product) is the GNP includes some more figures like income that residents
have received from abroad, minus income claimed by nonresidents
According to the Hillebrandt (1985, cited Weddikkara and Devapriya, 2005)
construction output can be selected as an important indicator of the level of demand
for construction. Further Raftery (1991, cited Weddikkara and Devapriya, 2005)
stated that the demand for construction originates from different sub- sector such as
public housing, public sector non housing, owner occupied housing and private
sector industrial and commercial, rehabilitation, improvements, repair and
maintenance. According to the Central Bank statistics, in Sri Lanka, a considerable
contribution for GDP has been reported from the construction industry where as it
ranks as the 7th most contributing sector among the other major sectors in Sri Lankan
economy during the past decade. Therefore it implicit that construction industry is
one of the significant contributors to the GDP in Sri Lanka. The Leng (2010) stated
that the boom in the construction industry in Sri Lanka during recent past years is as
a result of government’s strong commitment to post-war reconstruction. Also
Weddikkara and Devapriya (2005) have stated the reasons for construction demand
in Sri Lanka during past three decades is as a result of drastically development in
industrial, housing, commercial, irrigation and power. Table 2.1 provides a tabulated
presentation of the Seven (7) major sectors contributing to Total GDP, while figure
2.1 describes it using a line graph.
Table 2.1: Contribution of Major Sectors of the Economy to Total GDP

The Figures a re in Sri La nka n Rupee Millions
Sector 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Agriculture 176450 175182 179278 187729 265586 285897 294921 315644
Ma nufacturing 151951 159696 169336 178359 394233 413680 427334 458660
Construction 64115 68332 74414 80367 142996 154173 162970 177912
Whole sale a nd
reta il tra de 206507 218924 225103 238322 546145 571911 570152 613320
Tra nsport and
communica tion 125538 142679 159484 180307 286779 310029 330390 368653
Ba nking,
insura nce a nd
rea l esta te 108578 114717 122127 133958 193375 206048 217819 235255
Government
services 66568 69116 72903 74918 171259 181051 191778 202187
700000
Agriculture
600000
Manufacturing
500000
400000 Construction
300000
Whole sale and retail trade
200000
Transport and
100000 communication
0 Banking, insurance and
real estate
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Figure 2.1: Contribution of Major Sectors of the Economy to Total GDP
Table 1: Percentage Change of Major Sectors of the Economy to Total GDP

Sector 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Agriculture 20.10 19.80 19.00 17.90 17.20 16.80 11.90 12.10 12.00 11.90
16.90 16.70 16.40 16.30 16.30 16.00 17.70 17.50 17.40 17.30
Manufacturing
Construction 7.30 6.90 6.90 7.00 7.20 7.20 6.40 6.50 6.60 6.70
Whole sale
and retail 21.00 21.30 21.60 22.30 21.60 21.40 24.50 24.20 23.30 23.20
trade
Transport and
communicatio 12.50 12.80 13.30 14.60 15.50 16.20 12.80 13.10 13.50 13.90
n
Banking,
insurance and 8.10 8.90 9.20 11.70 11.70 12.00 8.70 8.70 8.90 8.90
real estate
Government
services 9.10 4.80 4.50 7.10 7.00 6.70 7.70 7.70 7.80 7.60
2.2 Construction industry
According to the Faizal ( 2010, cited Manamgoda, 2011) construction process can be
identified as constructing, altering, erecting, repairing and demolition of buildings,
civil engineering works and other structures. As well as assembly and installations of
on site prefabricated components and building engineering services is a part of the
construction activities. Nunnally (2007) stated the construction as follows; “It is
widely recognized that construction as a discipline of combination of art and science.
While understanding the technical aspect of construction is extremely important, it is
also essential that construction professionals have knowledge of the business and
management aspect of the profession”.
Kriaris (1987, cited Manamgoda, 2011) has described that the “industry” is a
group of related economic classified in accordance with the output or services
supplied. Thus construction industry can be identified as a sector of economic
activities which construct, erect, alter, repair and demolish buildings, civil
engineering work and other structures whereas it is also a discipline of combination
of art and science. As well as “the construction industry is also a key indicator and
driver of economic activity and wealth creation. While construction has traditionally
being a very conservative industry, the increasing rate of technological development
and growing international competition in the industry are serving to accelerate the
development of new construction method, equipment, materials and management
techniques” (Nunnally, 2007).
According to Faizal ( 2010, cited Manamgoda, 2011) the features of the construction
industry can be categorised by considering it’s features of output, nature of
construction work, size of the project, government as a main client, nature of the
demand for construction output, complexity of technology used and structure of the
industry.
Further, the Hongtao (2004, cited Manamgoda, 2011) has identified the construction
industry is a capital goods industry because the output given by the construction
industry fertilizes other industries’ contribution to the gross domestic product of the
nation. Faizal ( 2010, cited Manamgoda, 2011) stated that the involvement of man
power in many levels including skilled and unskilled labours and plants and
machinery is considerably high in construction industry compared to other industries.
The construction industry can be categorized in to many categories according
to their characteristics. According to the Hendrickson (2003) the construction
industry is classified in to four categories as residential construction, commercial and
institutional construction, infrastructure & heavy construction and specialized
construction. Nunnally (2007) classified the construction industry as building
construction, heavy construction and special construction. The building construction
is also call as horizontal construction which covers construction of commercial
buildings, residential building for both private and public. Heavy construction
includes high ways, airports, roads, bridges, irrigations, dams and other public
infrastructures. The special construction includes industrial construction, marine
construction, process plant construction and utility construction.
In Sri Lanka, infrastructure development has taken its place, especially focused on
the country’s capital Colombo, North and Southern provinces. The activities of the
construction industries are mostly controlled by the ICTAD (Institute for
construction training and development) in Sri Lanka, ministry of housing and
construction and local authorities while construction professionals are being
regulated by their respective professional bodies. ( For example, Institution of
Engineers Sri Lanka (IESL), Institute of Quantity Surveyors Sri Lanka ( IQSSL), Sri
Lanka Institute of Architects ( SLIA) etc.)
2.3 Construction projects

According to the Westland (2003), the project is a unique endeavor to produce a set
of deliverables within clearly specified time, cost and quality constraints. Winsock
and McGary (2003) has defined that the project is a combination of unique, complex
and connected activities which have specified goal or purpose that should be
accomplished within specified time, budget and according to specification.
By considering previous definitions given by authors, the Rozman (2009) defined the
project as a brought endeavor (undertaking, work, activity) of people conducting
interwoven activities and using different resources.
According to the project management institute (2000), a project based on the
distinctive charateristics of a project “as a temporary endeavour undertaken to create
a unique product or services”.Temporary means that every project has a definite
beginning and end. Unique means that the product or service is different in some
distinguishing way from all other products or services.
Project is a collection of activities which have proper sequencial relationship
between each other including pre-defined beginning and finishing points and which
are careered out by individual person or group of people or an organizations to
achieve their specified goals or objectives while maintaining its pre-sheduled budget,
duration and performances or quality. (Lester, 2003)
When consider about construction projects, they also have the same
characteristics as mensioned above because almost all the construction projects are
unique to each other in location, construction cost, quality, techniques used and etc.
Also Winsocki & McGray (2003) stated that there are some special
characteristics or parameters related to construction projects. They can be identified
as scope, quality, cost, time and resouces. Therefore in order to acquare the
maximum outcome for the project, there should have a proper balance among each of
these characteristics.
According to the British standard institute (2006), the client’s required output
out of the project is described to the contractor via specifications, drawings, images,
BOQ and etc. Also it is the duty of the construction professionals to documentation
as accurate as possible and alert the client and other construction project team in
continuous basis.
The expectation of the each and every client is to get the maximum value for
the money spend on the project. Now a days there is a high trend in increase of
awareness of the client and desing team on value management in order to realize that
expectation. ( Christabel & et al, 2003)
As mentioned by the Kemp (2006), the resources of a project are the anything
which are supporting to proceed the project, but non of them are remaining at the end
result of the project. When focus on a constrution project, labour, plants &
machineries, equipments, management and etc can be considered as resources.
2.4 Project cost

A good knowledge of construction techniques and management skills will
ensure effective delivery of the project within the set objectives. The project cost is
of great importance to the client as well as the contractor in the assessment their
affordability and profit level respectively. Simply it says that the project is highly
dependent on its cost.
There are number of reasons which are affecting on the cost of a construction
project. According to the research done by Koushki et al (2005) on delay and cost
increases in the construction of private residential projects in Kuwait, he has been
identified some factors affect on cost overrun as contractor-related problems,
material related problems and owner’s financial constraints.
The cost of a construction project is an important concern in any construction
project. In order to control the cost within an acceptable level, it requires appropriate
and accurate measurement of various project related determinants and the
understanding of the magnitude of their effects Chan et al (2005).
Project cost depends not only on a single factor but a cluster of variables
related to the characteristics of the project and the construction team. Technological
and project design requirements preset by the client and the consultants; contractor’s
expertise and management ability; and the client’s desired level of construction
sophistication play an important role in determining the cost of the project.
In order to deliver a construction project effectively, an understanding of the
elements of construction cost is required. The costs of a constructed facility to the
owner include both the initial capital cost and the subsequent operation and
maintenance costs (Hendrickson, 2003). Initial cost includes land acquisition,
planning and feasibility studies, architectural and engineering design; construction
materials, equipment and labour; field supervision of construction; construction
financing; insurance and taxes during construction; owner's general office overhead
and inspection and testing. The magnitude of each of these cost components depends
on the nature, size and location of the project as well as the management
organization, among many considerations. The owner is interested in achieving the
lowest possible overall project cost that is consistent with its investment objectives
(Hendrickson, 2003).
Construction projects are usally very expensive capital project and the need
for effective project cost management is required. The importance of cost
management is to provide an overview of construction project (i.e acquisition,
operating, and disposal costs) in order to select from alternative, predicting and
forecasting the probable cost of a project before construction as well as control cost
and flow of construction resources during construction. “Cash flow forecasting of
individual projects requires a clear understanding of contract conditions, works
programs and risk. In other words, the knowledge held by people directly involved in
the management of construction” (Kaka et al, 2003).
Cost management involves estimating the cost of resources, including people,
equipment, materials, and such things as travel and other support details (Heagney,
2011). According to the Levine (2002), part of the function of cost management is to
identify and evaluate all the options that can bring costs down or (the downside)
blow up your budget. Such options include risk and cost, time and cost and reuse and
cost.
Design stage of any construction project is a stage which best known for cost
reduction. Creedy (2004) established that early estimates are critical to the initial
decision-making process for the construction of capital projects.dd
According to the Morris (2000), the cost management in a project is a
combination of four basic activities. They are resource management, cost estimating,
cost budgeting and cost controlling.
2.5 Construction material

Materials are the major item used in construction. In construction, various
materials are used in various building component in combinations with other
materials. The choice of materials used depends on factors such as the component
specification, quality of material, availability of the materials, cost restrictions etc.
The materials under study are commonly used both in building, civil engineering as
well as heavy engineering constructions. This study is limited to the following
construction materials; cement, sharp sand, chippings, timber and reinforcement bars.
2.5.1 Cement
Cement is a major constituent of concrete which is responsible for the

hardening of the constituent materials of concrete through the process of hydration
when mixed with water. Cement consists of about 12% of the total weight of
concrete (Varghese, 2006).
The construction industry is becoming dynamic in its requirements which
have lead to the existence of various types of cements in order to meet up with these
requirements. “There are many varieties of cements and numerous ways of
classification. One of the simplest classifications is by the chemical constituent that
is responsible for the setting or hardening of the cement. On this basis, the silicate
and aluminate cements, wherein the setting agents are calcium silicates and
aluminates, constitute the most important group of modern cements. Included in this
group are the portland, aluminous, and natural cements” (Akers, 2001). Portland
cement is the most commonly used cement in the construction industry today.
2.5.1.1 Manufacturing of cement
In the manufacture of cement, the raw materials are first mined and then
ground to a powder before blending in predetermined proportions. The blend is fed
into the upper end of a rotary kiln heated to 26000F to 30000F by burning oil, gas, or
powdered coal. Because cement production is an energy-intensive process, reheaters
and the use of alternative fuel sources, such as old tires, are used to reduce the fuel
cost. (Burning tires provide heat to produce the clinker and the steel belts provide the
iron constituent.) Exposure to the elevated temperature chemically fuses the raw
materials together into hard nodules called cement clinker. After cooling, the clinker
is passed through a ball mill and ground to a fineness where essentially all of it will
pass a No. 200 sieve (75 µm). During the grinding, gypsum is added in small
amounts to control the temperature and regulate the cement setting time. The
material that exits the ball mill is Portland cement. It is normally sold in bags
containing 50 Kg of cement. Four major compounds [lime (CaO), iron (Fe2O3), silica
(SiO2), and alumina (Al2O3)] and two minor compounds [gypsum (CaSO4.2H2O) and
magnesia (MgO)] constitute the raw materials (Akers, 2001).
2.5.1.2 Types of Cements
I. Portland Cement
Akers (2001) further highlighted and explained the specification requirement of

portland cement as specified by ASTM C150. ASTM C150 defines requirements for
eight types of portland cement. The chemical composition of portland cement is
expressed in a cement-chemistry shorthand based on four phase compounds:
tricalcium silicate (Ca3S), dicalcium silicate (Ca2S), tricalcium aluminate (Ca3Al),
and tetracalcium aluminum ferrite (Ca4AlFe).
The basic types of portland cement covered by ASTM C150 are as follows:
• Type I
General-purpose cement is the one commonly used for many structural purposes.
Chemical requirements for this type of cement are limited to magnesia and sulfur-
trioxide contents and loss on ignition, since the cement is adequately defined by its
physical characteristics.
• Type II
Modified cement for use in general concrete where a moderate exposure to sulfate
attack may be anticipated or where a moderate heat of hydration is required. These
characteristics are attained by placing limitations on the Ca3S and Ca3Al content of
the cement. Type II cement may also be specified as low-alkali cement for use where
alkali reactive aggregates are present.
• Type III
This type of cement attains high early strength. In 7 days, strength of concrete made
with it is practically equal to that made with Type I or Type II cement at 28 days.
This high early strength is attained by finer grinding (although no minimum is placed
on the fineness by specification) and by increasing the Ca3S and Ca3Al content of the
cement. Type III cement, however has high heat evolution and therefore should not
be used in large masses.
• Type IV
This is the low-heat cement which has been developed for mass concrete
construction. The potential-phase compounds that make the largest contribution to
the heat of hydration are Ca3S and Ca3Al. Therefore the amounts of these are
permitted to be present are limited. Since these compounds also produce the early
strength of cement, the limitation results in cement that gains strength relatively
slowly.
• Type V
This type of portland cement intended for use when high sulfate resistance is
required. Its resistance to sulfate attack is attained through the limitation on the
Ca3Al content.
Hornbostel ( 1991), gave other types of portland cement as: White Portland
cement, water proof white Portland cement, portland pozzolanic cement, portland
blast furnace slag cement. Other types of cement available are aluminous cement,
plastic cements, expansive cement, masonry cement, natural cement, pozzolanic
cement, oxychloric (Sorel) cement and sulphur cement.
2.5.2 Sand
Sand is essentially quartz and it is called fine aggregate when it is between 4.75mm
and 0.15mm in size. Sand is procured in trips of trucks and should be delivered
without impurity.
Impurity in concrete affects the quality and strength of concrete. Suitable
sand for concrete construction can be sourced from pits, river beds and banks, steam
etc. Dredging of river beds is a major source of sand for concrete. Silt and clay sands
are not suitable for construction purposes due to the high content of sulphur. Sulphur
attacks concrete and affects the quality and strength of the concrete.
“Local sand can be used to make concrete as importation adds to the cost.
Availability of suitable sand for concrete is becoming scarce and expensive hence;
alternatives are being developed such as crushed rock and fly ash” (Varghese, 2006).
2.5.3 Aggregate
The aggregates most commonly used in concrete are gravel, crushed stone, crushed
slag, and pumice. Cement and water are mixed with aggregates to produce concrete.
Concrete contains both fine and coarse aggregates. Cement paste coats the
aggregates, binding them together and curing to form concrete.
Aggregates add strength to concrete and reduce its potential for shrinkage.
“Aggregates actually make up 60 to 80% of the volume of hardened concrete, so
their properties and characteristics are very important” (Beall, 2004). The coarse
aggregates most commonly used in residential concrete are gravel and crushed stone.
Aggregates must be sound, volume stable, nonreactive, abrasion resistant, suitably
shaped, rough textured, well graded, and clean. Each characteristic of the aggregate
has an effect on the resulting concrete. Unsound aggregates produce unsound
concrete which is weak, has poor appearance, low durability, and may experience
cracking.
Chemical reactivity, especially with the alkalis in cement, causes internal
expansion, cracking, and disintegration of the concrete. Low abrasion resistance
results in low strength and excessive wear in floors and pavements.
Aggregate that is too absorptive produces concrete that has low durability and
may suffer from scaling excessive shrinkage. Dirty or contaminated aggregate bonds
poorly with the cement paste, can increase mixing water requirements, delay setting
and hardening of the concrete, cause stains, lower strength and durability, and
increase shrinkage.
2.5.4 Reinforcement
Reinforcement material required for reinforcing concrete should possess the

following characteristics; high tensile strength, achieves tensile strength without
undue strain, abilities to be bent to shapes, have surfaces capable of having adequate
bond with concrete paste, economical as well as have sufficient coefficient of
thermal expansion.
Chudley and Greeno (2005) stated that “Materials that meet the above
requirement is steel in form of bars and is supplied in two basic types; mild steel and
high yield steel”. They also emphasized on the British standard specifications as
BS4449 and strength of the bars as 250N/mm2 and 460N/mm2 for mild steel and high
yield respectively.
In the design of a structure, the designer show ensure the most economical way
of specifying reinforcement as well as reduce the use of multi diameter
reinforcement. “A good design will limit the ranges of diameters used together with
the type of steel chosen to achieve an economic structure and to ease the site
processes of handling, storage buying and confusion that can arise when the
contractor is faced with a variety of similar materials” (Chudley & Greeno, 2005).
Another form of reinforcement used in construction is fabric mesh reinforcement
which is covered by BS4483. Chudley and Greeno (2005), highlighted 4 basic types
of fabric mesh and there uses:
1. Type ‘A’ for square mesh (floor slab)
2. Type ‘B’ for rectangular structural (slab)
3. Type ‘C’ for long mesh (road and pavement)
4. Type ‘D’ a small wrapping mesh (binding concrete fireproofing).
Reinforcement is purchased in tones and is storage in a dry area around the site
away from moisture. Rust is a major defect in reinforcement which can greatly
reduce the strength of the concrete. A high level of wastage can have great effect on
the cost of concrete as well as the total construction cost.
2.5.5 Formwork
Concrete formwork serves as a mold erected to produce concrete elements having a

desired size and configuration. Two major categories of formwork are site made and
prefabricated. It is usually removed after the concrete has cured to a satisfactory

strength. In some cases, concrete forms may be left in place to become part of the
permanent structure.
It has been established that for many concrete structures, the largest single
component of the cost is the formwork. “Formwork costs can exceed 50% of the total
cost of the concrete structure, and formwork cost savings should ideally begin with
the architect and engineer” (Alexander, 2003).
To control this cost the designer of concrete formwork must choose
appropriate materials and utilize them so that the goals of safety, economy, and
quality are met. It should have sufficient strength and stability to safely carry all live
and dead loads encountered before, during, and after the placing of the concrete. It
should be sufficiently resistant to deformations such as sagging or bulging in order to
produce concrete that satisfies requirements for straightness and flatness.
To produce concrete forms that meet all job requirements, the construction
engineer must understand the characteristics, properties, and behaviors of the
materials used and should be able to estimate the loads applied to the forms and be
familiar with the advantages and shortcomings of various forming systems. Form
economy is achieved by considering four important factors; cost of form materials,
ease of form fabrication, efficient use of forms, planning for maximum reuse to
lower per use cost.
2.5.5.1 Formwork materials
Most concrete forms are constructed using basic materials such as Timber,
plywood, and steel, or are prefabricated panels. Site made forms are often designed,
built, and used with the particular requirements of a single project in mind. Job-built
forms are often the economical choice when complicated forming is required that
would be difficult or more expensive if using commercial form systems.
Plywood is used where a large area is required to be covered while wood
planks are used where smaller areas are to be covered. Use of the prefabricated
panels may save labor costs on jobs where forms are reused many times.
2.6 Material management

Materials are major components of construction. “Materials management is
an important element in project planning and control. Materials represent a major
expense in construction, so minimizing procurement or purchase costs presents
important opportunities for reducing costs. Poor materials management can also
result in large and avoidable costs during construction” (Hendrickson, 2003). The
management of material involves material scheduling, procurement, storage.
The economics and management of materials and its flow on site would
eliminate unnecessary delay and ensure economy in the construction process.
Materials such as cement, sand, chippings (aggregate), timber and reinforcement are
materials which are commonly used in construction due to the extensive use of
concrete for its construction properties. Material cost is mainly incurred in
procurement and construction processes. In planning for concreting work, material
management is essential to the management of the overall concreting cost. The
management of concrete material is very technical as it varies from site to site.
Hence, each site has to be treated separately in other to reduce wastage of material
and time, as well as increase labour productivity.
2.6.1 Material Procurement
This is the process of purchasing, transportation to site as well as storage of the

materials on site. Hendrickson (2003), explained the various cost associated with the
procurement of construction materials as:
2.6.1.1 Purchase cost:
This is the unit price of material from an external source as well as the cost of
transporting the materials to site. Concrete materials are majorly purchased in bulk;
cement in bags, aggregate and sand in trips.
2.6.1.2 Order cost:
This is the cost incurred in the search of the required materials, making orders,
inspection of the materials before purchasing etc. this is the smallest cost incurred in
material management.
2.6.1.3 Holding/ storage cost:
This is the cost incurred in the storage and handling of the materials. Ordering and
inspection of the specified materials should be done before purchase of the material.
This is essential to ensure that the unnecessary costs are not incurred due to rejection
of substandard material being purchased. Storage and handling of construction
materials requires the knowledge of their properties.
Cement is a hygroscopic material when kept in prolonged storage its
construction properties deteriorates due to the gradual hydration of grains. Cement
should be stored such that damp absorption is prevented as it sets slowly and loss it
strength or quality when moisture absorption occurs cement should be stalked on
pallet in an order in which first in are first out. Also sand and aggregate should be
well stored in such a way that waste is prevented by tampering and wind.
2.6.1.4 Unavailable cost:
The unavailability cost is incurred when a desired material is not available at the
desired time. Shortages may delay work, thereby wasting labour resources or
delaying the completion of the entire project. Moreover, the cost associated with a
shortage may also be difficult to assess; if the material used for one activity is not
available, it may be possible to assign workers to other activities and, depending
upon which activities are critical, the project may not be delayed.
Effective management and processing of concrete materials will ensure that the
objective of completion of a construction project within budget and stipulated time is
achieved.
Chapter III Research Methodology
3. Chapter Three
Research Methodology
3.1 Introduction
Research is a systematic investigation, including research development,
testing and evaluation, designed to develop or to contribute to a generalizable
knowledge. ( Federal Office for Human Research Protections – OHRP).
Methodology is the analysis of the principles or procedures of inquiry in a
particular filed. (Merrium Webster Dictionary)
Thus the research methodology can be identified as an analysis of procedures
used in a systematic investigation, designed to develop or to contribute to a
generalizable knowledge. This systematic investigation is a consist of research
development, testing and evaluation.
The research methodology which includes practices used in collecting,
presenting and analyzing data, plays a crucial role in drawing conclusions about the
phenomena of interest. It directly influences the validity and reliability of the
judgments made upon the study. Hence a suitable research methodology, based on
research objectives has been selected and executed. The areas of concern in this
chapter are the key components of the chosen research methodology naming,
research design, target population, sampling techniques, research instrument and
research instruments used for data analysis.
2.7 Research design

Research design serves as the plan for collecting and utilizing data, so that
desired information can be obtained with sufficient precision or so that an hypotheses
can be tested properly. A carefully organized investigation will be performed
focusing general market price behaviors of certain construction materials and their
influence on construction industry, on the basis of industry’s contribution to GDP.
Firstly, the data will be collected from professionally authorized journals and
they will be organized into tabular forms. Then appropriate statistical analysis will be
performed considering desired levels of accuracy and reliability. Finally inferences

can be made and the conclusions can be drawn based on analytical results.
2.7.1 Study population
Population is the whole group of elements under consideration. This can be a

larger defined target group of people or objects from which the sample for statistical
measurement is obtained. The target populations of this study are the building
materials required in construction industry. The data related to target populations will
be collected from professional periodicals and, statistical publications by the
professional construction consultants and central bank of Sri Lanka.
2.7.2 Sampling techniques
Sampling is the process of selecting a small number of elements from a larger

defined group of elements (population) such that the information obtained from the
small groups will allow judgments to be made about larger groups. Sampling helps
achieve economical and quick data. Determination of sample sizes should be
carefully done by considering the initial sizes of populations to achieve maximum
validity and reliability for final conclusions. Sampling error is any type of bias that is
attributable to mistakes either in drawing a sample or determining the sample size.
2.7.3 Research instrument and data collection
The data which will be used in the study are mainly secondary data. (The data
which is being obtained by literature study) The consideration will be focused on
information on basic prices of selected construction materials obtained from ICTAD
bulletin (2001 – 2011) and construction contribution of the gross domestic product as
stated in the Sri Lankan central bank reports.
The research instruments which will be adopted for this project are data
sheets which are tables used to collect mostly secondary data. In this research work,
the information required in the tables is derived from professional periodicals as well
as financial and statistical bulletins as mentioned above.
2.8 Instrument for data analysis

A logical and an appropriate statistical instrument is selected for the analysis
of data. Correlation and Linear Regression will be used to determine the strength of
relationship between two variables and further to derive a fitting equation to describe
the identified relationship. This will help in making predictions about the behavior of
dependant variable upon changes of in independent variable. The regression equation
can be expressed as follows;
Where a and b are the unknown.
∑ ∑ ∑
∑ ∑
2.8.1 Coefficient of determination (r2):
This is used to assess the strength or the association between the variables. It
shows the proportionate change in the dependent variable (Y) accounted by a unit
change in the independent variable (X). Further it implies the propensity (positive or
negative) of the relationship.
∑

∑ ∑
2.8.2 F test
This test is useful in deciding the acceptance or rejection of null hypotheses.

It is done by comparing F statistics with the test statistics. F statistics is obtained by
the F distribution charts. Simply this test is carried out to determine if the variable
occurred due to chance.
2.8.3 Decision Rule
Decision rule helps decide whether to adopt or to reject null hypotheses at a

defined level of accuracy. Judgment is made upon comparison of test statistics
(calculated value) with critical value (F value obtained from F distribution). The
rejection area is determined by the position of critical value in the F distribution.
Hence, if Ftest < Fcritical , the null hypothesis is adopted, where as if Ftest > Fcritical,
then null hypothesis is rejected.
Two types of errors can be occurred in decision making naming type 1 and
type 11 error. Type 1 error is the rejection of the null hypothesis that should be
accepted, and type 11 errors is the acceptance of a null hypothesis that should be
rejected.
2.8.4 P value
It is the probability, when the null hypothesis is true, that the absolute value
of the F-distributed would equal or exceed the observed value (F-test). A small P-
value is evidence that the null hypothesis is false and the attributes are, in fact,
correlated. Hence, the decision rule for all experiment conducted in this research
study were;
Ho: - P 0.05< P calculated: Reject Null hypotheses.
Ho: - P 0.05> P calculated: Accept Null hypotheses.
The 0.05 level of significance is used; this means that the risk of committing
a type 1 error is five times out of hundred trials, which is acceptable as only little
information is available about the research area.
2.9 Research hypothesis
2.9.1 Null hypothesis (H0);
The following null hypothesis were made:
• H0-1: The percentage change in price of cement has no significant

relationships with the percentage change in construction input to gross
domestic product.
• H0-2: The percentage change in price of sharp sand has no significant
domestic product.
• H0-3: The percentage change in price of chippings has no significant
domestic product.
• H0-4: The percentage change in price of timber has no significant relationships
with the percentage change in construction input to gross domestic
product.
• H0-5: The percentage change in price of reinforcement has no significant
domestic product.
2.1.1 Alternative hypothesis (Hi);
• H1: The cost of sand per floor area has significant relationships with the
percentage change in construction input to gross domestic product.
• H2: The cost of cement per floor area has significant relationships with the
• H3: The cost of aggregate per floor area has significant relationships with the
• H4: The cost of formwork per floor area has significant relationships with the
• H5: The cost of reinforcement per floor area has significant relationships with
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The Effect of Price Changes of Some Major Construction Materials On The Economic Input of Sri Lankan Construction Industry

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Table of Content

1. Chapter One .......................................................................................................... 1

2.8.3 Decision Rule ....................................................................................... 24

Figure 1.1: Chapter Break Down ................................................................................. 5

1.2 Research problem

1.0.1 Literature Survey and Review

1.0.1 Secondary Survey

1.0.2 Data Analysis

The statistical evaluation of data is performed using basic statistical concepts.

1.1 Scope and limitations

1.2 Chapter breakdown

CHAPTER ONE • Background for the research

CHAPTER TWO • Theoretical framework for the study.

CHAPTER THREE • Review the significance of the study

CHAPTER FOUR • Presentation of data findings

CHAPTER FIVE • Conclude the study with findings and

Figure 1.1: Chapter Break Down

2.1 Gross domestic product

Table 2.1: Contribution of Major Sectors of the Economy to Total GDP

Ma nufacturing 151951 159696 169336 178359 394233 413680 427334 458660

Construction 64115 68332 74414 80367 142996 154173 162970 177912

Figure 2.1: Contribution of Major Sectors of the Economy to Total GDP

Table 1: Percentage Change of Major Sectors of the Economy to Total GDP

2.2 Construction industry

2.3 Construction projects

2.4 Project cost

2.5 Construction material

Cement is a major constituent of concrete which is responsible for the

2.5.1.1 Manufacturing of cement

2.5.1.2 Types of Cements

Akers (2001) further highlighted and explained the specification requirement of

Reinforcement material required for reinforcing concrete should possess the

Concrete formwork serves as a mold erected to produce concrete elements having a

prefabricated. It is usually removed after the concrete has cured to a satisfactory

2.5.5.1 Formwork materials

2.6 Material management

2.6.1 Material Procurement

This is the process of purchasing, transportation to site as well as storage of the

2.6.1.1 Purchase cost:

2.6.1.2 Order cost:

2.6.1.3 Holding/ storage cost:

2.6.1.4 Unavailable cost:

2.7 Research design

performed considering desired levels of accuracy and reliability. Finally inferences

2.7.1 Study population

Population is the whole group of elements under consideration. This can be a

2.7.2 Sampling techniques

Sampling is the process of selecting a small number of elements from a larger

2.7.3 Research instrument and data collection

2.8 Instrument for data analysis

Where a and b are the unknown.

2.8.1 Coefficient of determination (r2):

This test is useful in deciding the acceptance or rejection of null hypotheses.

2.8.3 Decision Rule

Decision rule helps decide whether to adopt or to reject null hypotheses at a

2.9 Research hypothesis

2.9.1 Null hypothesis (H0);

The following null hypothesis were made:

• H0-1: The percentage change in price of cement has no significant

2.1.1 Alternative hypothesis (Hi);

1. Akers, D.J., 2001. Building materials. In F. S. Merritt, & J. T. Rickettts

15. Faizal, A . M . , 2010. Construction Industry. Construction Economic